What investors should do as the Federal Reserve keeps interest rates high？

[Alston Liu]

Fed fund rates remain unchanged
On May 1, 2024, The Federal Open Market Committee (FOMC) voted unanimously to maintain the target fed funds rate in its current range of 5.25-5.50%, citing ongoing concerns over high inflation. In fact, the US Fed interest rate has remained unchanged since July 2023 and the central bank indicated there will unlikely be a rate hike in the near future. Such continuous has been stirring across global markets and various assets.


How do Fed rates impact investors?
Investors might get overwhelmed every time Fed announces interest rate since it usually comes with market volatility and fluctuation. In this situation, it’s always a good habit to focus on asset allocation.  Before that, investors should have a fully understanding of their current finances, risk tolerance, and investment goals. Currently, high interest rates tend to be a headwind for many investments. Certain holdings are feeling the effects.

- Borrowing costs. High rates lead to higher borrowing costs which can affect the affordability of mortgages, reducing demand for real estate and impacting property values
- Fixed-income investments. Such as bonds and Treasury securities. Newly issued bonds generally offer higher yields. Holding old issued bonds can potentially lead to capital losses.
- Stock market. Particularly growth stocks that highly rely on capital for future business expansion. High rates will impact companies’ stock prices because of the difficulty of obtaining capital and earning.
- Higher yields on savings accounts. In a higher rate environment, banks raise annual percentage yields on savings accounts which benefits savers.

What investors should do?
The sustained high rate environment is a reminder for investors to carefully evaluate their portfolio allocation. Whether investing in the short term or long run, investors might as well take a look at their personal finances and make the necessary moves of diversifying their assets like finding high-yield savings accounts and certificate of deposit for long-term holding. As for short-term investment, one of the options is contract for difference (CFD) trading. It provides opportunities for short-selling, allowing investors to profit from downward price movements in assets affected by high interest rates. Plus, leveraged trading in CFDs can amplify potential returns during period of increased market volatility resulting from high interest rates. Additionally, CFDs can be used as hedging instruments to mitigate risk in a portfolio, providing partial offsets to potential losses.

An established CFDs broker is JRFX. Operating since 2010, JRFX offers traders competitive spreads and provides one of the best trading environments within the industry. JRFX requires only a $1 minimum deposit to start trading on currencies, indices, commodities, and more. It is popular among traders for its user-friendly interface, 24/7 customer service, and abundant educational resources.

The information provided is for informational purposes only and should not be considered as financial advice. Trading CFDs carries risk, and investors should carefully evaluate their risk tolerance and conduct independent research.